The Reserve Bank of India (RBI) raised the repo rate by 50 bps to 4.90 percent on June 8 with immediate effect and kept the stance 'withdrawal' from 'accommodative' to ensure that inflation remains under control.
The RBI rate-setting committee was unanimous in its decision on lifting the rates as the central bank realises the current inflation scenario remains tricky.
Standing Deposit Facility (SFD) and Marginal Standing Facility (MSF) rates were also raised by 50 basis points to 4.65 percent, and 5.15 percent, respectively.
RBI left the CRR untouched. Cash Reserve Ratio (CRR) is the deposit that banks are mandated to maintain by the RBI as reserves in the form of liquid cash.
RBI Governor Shaktikanta Das said the monetary policy committee (MPC) voted unanimously to remain focused on the withdrawal of accommodation to ensure inflation remains within target going forward.
Das said the inflation has steeply increased much beyond the tolerance level while the process of recovery in emerging market economies is also getting affected.
He, however, retained faith in the economic growth of the country which he termed as 'resilient'. Das said MPC had started a gradual withdrawal of the extraordinary accommodation and the central bank will continue to be proactive and decisive in mitigating the fallout of the geopolitical crisis on our economy. Our steps will be measured, and calibrated, he said.
The RBI retained the FY23 GDP growth forecast at 7.2 percent with Q1 (April-June) GDP growth forecast at 16.2 percent, Q2 (July-September) GDP growth forecast at 6.2 percent, Q3 (October-December) GDP growth forecast at 4.1 percent and Q4 (January-March '23) GDP growth forecast at 4 percent.
"The recovery in domestic economic activity is gathering strength. Rural consumption should benefit from the likely normal southwest monsoon and the expected improvement in agricultural prospects. A rebound in contact-intensive services is likely to bolster urban consumption, going forward," said RBI.
"Investment activity is expected to be supported by improving capacity utilisation, the government’s capex push, and strengthening bank credit. The growth of merchandise and services exports is set to sustain the recent buoyancy. Spillovers from prolonged geopolitical tensions, elevated commodity prices, continued supply bottlenecks and tightening global financial conditions nevertheless weigh on the outlook. Taking all these factors into consideration, the real GDP growth projection for 2022-23 is retained at 7.2 per cent," RBI added.
Retail inflation or the CPI inflation forecast for FY23 has been raised to 6.7 percent from 5.7 percent, with April-June inflation forecast revised to 7.5 percent from 6.3 percent, July-September forecast revised to 7.4 percent from 5.8 percent, October-December revised to 6.2 percent from 5.4 percent and January-March 2023 inflation forecast revised to 5.8 percent from 5.1 percent.
The next meeting of the MPC is scheduled during August 2-4, 2022.
